Tackling Inequality in the EU: The New Foundation for a Green and Social Europe

[Fernanda G. Nicola is a Professor of Law at the American University Washington College of Law, the Director of the Program on International Organizations, Law and Diplomacy, and Permanent Visiting Professor at iCourts, University of Copenhagen.]

Europe is in turmoil, with European Union leaders struggling to respond to the political and economic fall out of the no-deal Brexit, the threat of another financial crisis and various political fissures exposed by immigration and Yellow vests protests. So far, the nativist right wing has best exploited these dynamics on both sides of the Atlantic. Right-wing populists in Austria, Italy, Germany, Hungary, and Poland have all argued that European integration has undermined national sovereignty while mainly advancing the economic interests of transnational elites.

The populists have found a ready electoral audience in part because European integration has had very uneven effects. The winners have included poorer Eastern Europeans as well as financiers in London, Frankfurt, Paris, and New York. The losers have included working- and middle-classes in many wealthier countries. But the Euro-populists misdiagnose the problem: integration itself is not to blame. Rather, the fault lies with the structure of the European Union’s basic institutions. Indeed, there is a viable egalitarian and democratic path forward, one that combines greater integration with robust social protection, not to mention ecological justice.

To understand, some history will be helpful. The entire E.U. project was an effort to ensure economic stability and social harmony in Europe, but tensions between national sovereignty and integration has been there since the beginning. The E.U.’s foundations lay in the creation of the European Coal and Steal Community in 1952, in which France and Germany bound their national economies together in order to prevent another outbreak of war. The aspirational project of European integration has encountered important setback and resistance creating all types of quasi-federal institutional arrangements from the 1987 Single European Act, laying the foundation of the Single Market, to Maastricht in 1992 creating the “ever closer” Union finalizing the Economic and Monetary Union. After each attainment, a new form of cooperation based on the principle of subsidiarity resulted in expanding the competences of the Union while at the same time preserving national sovereignties through new forms of collaboration between the EU and its institutions with national courts, agencies and parliaments to preserve the precious balance summarized by its motto: “united in diversity”.

But in recent decades the Union has instead encouraged the retrenchment of domestic welfare states, often emphasizing economic liberties and economic integration over social protections. The Court of Justice pushed this process along, most famously in its Viking-Laval quartet, which made it much more difficult for trade unions to establish binding national-level standards and restricted workers’ rights to strike. Unlike in the U.S., Europe adopted a single currency without a unified fiscal policy, leaving European policymakers with limited powers to redistribute resources between member states, much less within member states. And the European Commission—which serves as the Union’s bureaucratic and administrative arm—missed a chance to address such issues in a recent “White Paper on the Future of Europe.” That document offered five future scenarios but focused mainly on the Single Market, not on social protections.

Since structural elements of EU governance have led to the current crisis, structural solutions are necessary. Europe needs a new balance between integration and social protection, free movement of capital and workers’ rights, and European versus national-level authority. Recent efforts by progressive European scholars may point the way forward.

The latest one comes from Thomas Piketty and others, who in early December published a Manifesto proposing a Treaty on the Democratization of the Economic and Social Government of the European Union (TDEM). The broad goal here is for Europe itself to take up the mandate of the social regulation of capitalism, rather than leaving that task to national governments. The Treaty would create a new hybrid legislature composed of members of both national parliaments and the European Parliament. This body would have the authority to levy harmonized European taxes based on income, wealth, corporate profits, and carbon emissions. It could also decide on the re-distribution of income within nations from those taxes, and could override national legislatures and other EU institutions with regard to matters of national income distribution.

The Piketty plan follows on former Greek finance minister Yanis Varoufakis’ DiEM25 initiative, which calls for an ambitious European Green New Deal. That would be funded through the issuance of European Investment Bank (EIB) bonds, the proceeds of which would be used to invest in new infrastructure, green energy and human capital policies. Varoufakis has also criticized the Piketty plan on two fronts. First, for doing only redistributing within Member States, thus limiting its egalitarian impact. Second, for adding yet another body to the already-arcane set of European institutions.

In reality, both plans have merit and could be improved. The Green New Deal could restore hope in Social Europe by creating more widely shared prosperity, and encouraging a just transition toward a more sustainable economy. The TDEM, meanwhile, would help to mitigate recurrent tensions between sovereignty and integration. Its hybrid Assembly would help make European governance more accessible to national citizens, in the subsidiarity tradition of European integration. The Assembly could serve as a truly transnational and democratic forum for crucial, interdependent budgetary decisions. Yet both are not addressing the missed opportunity for the EU to create digital tax that will be left at the whim of the different Member States.

The Yellow vests protests illustrate some of what is at stake. Those began after Macron sought to raise taxes on diesel fuel without offsetting tax breaks for the working and middle classes, many of whom rely on diesel to commute to their jobs. The protests highlighted both the close relationship between environmental justice and economic justice, and the impossibility of addressing such matters solely through national-level governance. A hybrid assembly with the power to redistribute at the cross-national level could ensure that subsequent integration is far more democratically legitimate. It would become a site where the gilet jaunes could come together with workers from other European nations to decide on their common future—often by organizing against financial elites at both the national and European levels.

Today’s most pressing challenges—economic inequality, the erosion of democratic rights, and climate change—cannot possibly be solved at the national level or through what looks like a “falling off the cliff” Brexit. On the Continent, the path toward a more egalitarian, democratic, and green future runs through a new sort of European integration.